The following are answers to some of the most frequently asked questions about the $20 million shortfall in the Louisville Metro Government budget.

What is causing a $20 million shortfall in the city’s budget?

The leading cause of the projected shortfall is the decline in occupational tax revenues resulting from the national economic recession. Occupational taxes, which include employee withholding and net profits revenues, account for more than 57 percent of all city General Fund revenues.

The city’s budget was based on a 2.9 percent growth in overall revenues, the lowest increase in five years. Because the decline on Wall Street has hit America’s Main Streets, rather than revenues growing 2.9 percent, they will decline 1 percent – a 4 percent swing.

The layoffs at local companies – from YUM to The Courier-Journal – and the shutdown of the Ford plants have a direct impact on tax collections. Also, Louisville’s unemployment rate currently stands at 6.5 percent and is likely to increase over the next few months. With more people out of work, fewer people are paying occupational taxes.

How did you determine the shortfall level of $20 million?

Our team of financial experts began with actual revenue receipts from the first four months of the fiscal year; factored in national and regional economic forecast information that indicate downward trends; and considered local information about layoffs, furloughs, unemployment increases, overtime decreases, business closings, etc.

This analysis shows that revenues will be about $20 million less than originally projected when the budget was approved in June, a time when the Dow Jones Industrial Average was at a level about 35 percent higher than today.

Did this shortfall sneak up on Metro Government?

No. The Mayor and his senior economic leaders have been monitoring the global economic downturn and its effects on Louisville on a daily basis. Last year, those same advisors sounded an alarm early in the budget year and projected a revenue shortfall of at lease $9.6 million– an amount dismissed by some as exaggerated and without basis. In fact, the revenue shortfall ultimately was $13 million, and the swift action to cut costs avoided major layoffs and service cuts.

How much money is in the city’s “rainy day” fund? Can those funds be used to help with the shortfall?

The city has $65.3 million in undesignated, unrestricted funds, commonly known as the “rainy day” fund. This amount is equal to 13 percent of the city’s budget, or enough money to pay the city’s bills for about six weeks.

The Mayor believes we should first reduce government spending to address the shortfall before tapping into the fund, which is intended for use in catastrophic times to pay salaries and operating expenses and avoid plunging the city into bankruptcy.

Government should take the same course that our citizens do when their families are hit with job losses or salary cuts – reduce spending before raiding savings accounts or college funds. Using money from the rainy day fund should be a last resort.

There are many disadvantages to using these funds for the shortfall including:

• The fund balance is critical to maintaining the high credit rating that allows the city to borrow money for important projects at lower costs than most cities;
• The money is a one-time source of funding to address an economic problem that will almost certainly continue into the next budget year;
• The fund is the primary source for paying legal judgments, such at the firefighter pay ruling by the Kentucky Supreme Court that will cost the city an estimated $10 million to $20 million;
• The fund is the city’s primary backstop for health insurance claims for employees because the city in self-insured;
• The fund is the primary source of revenue to pay employees and operating expense in a catastrophic situation, such as a natural or man-made disaster;

How much money is in the city’s unreserved fund balance? Can those funds be used to help with the shortfall?

The most recent audited numbers show the city’s unreserved fund balance at $97.2 million. It includes the rainy day fund balance of $65.3 million and another $32 million in funds that have been restricted for specific uses. Those restricted funds include the Metro Council’s Neighborhood Development Funds, dollars to match state and federal grants and money reserved for payments for on-going construction projects. Using these funds for the shortfall would not be a responsible approach and, in some cases, would violate laws and contracts.

Why can’t you use bond funds for capital projects to help with the shortfall?

The city either borrows money or pays cash for capital projects. It’s not appropriate – and in many cases, not permissible – to use borrowed funds to pay operating expenses. Doing so would be like taking out a second mortgage on your home to pay your electric bill or restaurant tab.

Why not stop construction on the arena – and use money from it to cover the shortfall?

The arena is a state project, overseen by the arena authority and the Kentucky State Fair Board. Louisville is contributing money toward the project, but the first payments aren’t due until fiscal year 2011.

In addition, it would be short-sighted to stop a major construction project that is employing thousands of people at the very time our economy needs jobs.

Why not pull money from the Center City project and use it for the shortfall?

The city borrowed about $12 million, at the very low rate of 1.1 percent, to buy the Old Water Co. block for the Center City project. We will make payments on that loan in future budget years. No other city money currently is being used for Center City.

Also, the city is now generating $100,000 in revenue from the Old Water Co. block because we are taking over the commercial parking lots on a portion of the land.

Why not stop all building projects, like the new firehouses?

It would be unwise to stop projects that are already under construction. The firehouses, for example, will be completed in early January. Stopping them now would violate construction contracts. We are reviewing all capital projects to determine whether they should be delayed.

How much of the city’s budget is spent on personnel costs?

About 70 percent of the city’s budget goes for salaries, benefits and other personnel costs.

What is the average salary and benefits of Louisville Metro government employees?

Last year, taxpayers spent an average of $55,666 in salary and benefits for each non-sworn city employee. The average cost for sworn personnel (such as police and firefighters) is considerably higher – $90,933 on average for police officers and $93,296 for firefighters.

Why did you decide to close Otter Creek Park?

Otter Creek is a beautiful park, but it costs Metro Government $500,000 annually to keep open and the park is not located in Louisville – it’s in Meade County. Metro Parks is currently in discussions with several governments and private agencies that have expressed interested in taking over operations of the park.

Why not sell city assets like parking garages?

We have sold assets in the past, such as land and buildings, and we have studied the option of selling parking garages. We determined that selling parking garages sacrifices a continuing source of money for a one-time gain and would limit our ability to keep parking fees reasonable for citizens. In addition, we could not expect to get a premium price for real estate in the current market conditions. Parking garage revenues also allow the maintenance of current garages and the building of new ones as they are needed.

Why not furlough employees more than four days?

Extending the current furlough schedule remains a possibility. Under the Mayor’s plan, most city employees will take four unpaid days off (Dec. 26, Jan. 2, April 3 and May 1). Employees will not be allowed to take those days as vacation, personal or sick days. We expect those furlough days to generate a savings of nearly $2.9 million. By contract, police and firefighters are not required to participate in the furlough.

Will there be changes to the take-home car program for police and other Metro employees?

The take-home car program is just one of many items under consideration as we work to close the budget shortfall.

The majority of the take-home cars are dedicated to the police department – about 1,100 of the 1,200 cars. This program is considered a privilege for employees – a benefit that is worth about $8,000 a year to all employees and even more to police officers, who aren’t required to pay taxes on the benefit like other employees. Currently, employees who use vehicles for personal and Metro Government use pay $30 a month; those who use vehicles for off-duty jobs pay $60 a month.

Why did you discontinue the state firefighter training incentive pay?

The state training incentive pay is a $3,100 grant given to each firefighter. We strongly support our firefighters continuing to receive this state grant, and we have pledged to go with them to Frankfort to find a way to continue the state grant program.

The state grant checks pass through our payroll system to our firefighters. However, a recent Kentucky Supreme Court decision mandated that all pay firefighters receive should be calculated into the base salary for figuring overtime. City firefighters receive 16 hours of scheduled overtime per week, and because we must pay overtime and benefits for the state grant, our taxpayers end up paying about $1,700 per firefighter to handle those checks – or about 50 cents on every dollar of the grant. It’s a steep handling fee that amounts to nearly $1 million per year.

This issue affects cities across Kentucky, not just Louisville. The Kentucky League of Cities is also working with us to resolve the issue so that firefighters can receive those state dollars directly.

State officials have told Mayor Abramson that when the changes are worked out at the state level, the grants would be retroactive so firefighters would get any money lost.